Video rental windows around the world could soon be a thing of the past, home entertainment experts predicted this week after an eight-month stand-off in the UK between video giant Blockbuster and Warner Bros came to an abrupt end.
An agreement between the studio and the world's biggest home entertainment player means that Warner videos and DVDs will be now be released for retail and rental business at the same time - effectively destroying what has been an eight week rental window. In Japan, meanwhile, studios are already releasing rental and retail day and date.
The Warner deal is expected to hugely boost retail video business at the expense of rental - and in turn help distributors to more effectively link theatrical marketing campaigns with retail video releases which will now take place much earlier. The knock-on effect of the end of the rental window will also mean that films will be able to screen on television sooner, thereby helping studios to protect their lucrative pay-TV contracts and boost pay-per-view (PPV) and video-on-demand (VoD) formats..
The agreement follows a dispute which started last July when Warner unilaterally announced that it would no longer maintain a "window" between video and DVD releases of its titles into the rental and retail sectors. Blockbuster responded by refusing to carry new Warner films for rental use and a number of independent rental chains followed Blockbuster's lead.
Rental operators are traditionally asked to buy their tapes and discs at costs two to three times higher than consumer prices. In return they traditionally enjoyed eight weeks of rental-only use of the titles before they hit shops. Warner's July move was seen as making rental operators pay more than retail operators, but removing the trading advantage.
Warner is keeping quiet about the terms of the new agreement. In a statement, Neil McEwan, managing director, Warner Home Video said: "It is important that our titles are available in Blockbuster UK. We want customers to be able to rent or buy the titles they want, when they want, from the outlet of their choice."
But the company's now departed home entertainment guru Warren Lieberfarb scattered plenty of clues at a speech in November. He said that DVD retail, pay-per-view (PPV) and video-on-demand (VoD) offer "strongly attractive" returns to the studios, compared with rentals.
DVD may have given the sell-through sector's case a double boost. "DVD has led to a new burst of retail activity," said Derek Mann, managing director of the Entertainment Software Retailer's Association (ESRA). With their smaller size and greater functionality, DVDs have achieved premium pricing status, as rental staple VHS video has been discounted.
The UK rental trade points out that, despite forecasts of gloom, the last four years have been pretty steady. Last year UK video rentals generated some $741.9m (£460m) of business at consumer prices and brought in a net $177.4m (£110m) of revenue to distributors This, however, just does not offer the upside or fat margins available from other media.
By allowing video retail launches to move forward a couple of months pay-TV premieres can benefit from the expensive press and marketing campaigns that accompany a film's theatrical launch. Some analysts hint that studio releasing operations may now be prepared to increase their theatrical p&a spend if it influences the high margin sell-through video and pay-TV business.
But the removal of rental windows is also a defence measure. "Video and film have to be pro-active and pre-empt the sort of damage that has been done by piracy in the music industry," said one senior UK video industry source.
"Warner's view is that we as an industry need to do more to deliver, so that consumers don't just take product [from illegal sources], so that we can make money and keep on delivering what the consumer wants in the long term. That is part of a policy that would also mean making more stuff available via paid-for online sources."
Lieberfarb is understood to have urged other studios to drop or shorten rental windows, but was advised by lawyers that co-ordinated action by the studios could be seen as the operation of an illegal cartel.
Nevertheless, other studios are keen to follow Warner's lead. In January, 20th Century Fox indicated that it would close the rental window later this month (March 17) with the simultaneous rental and retail launch of The Road To Perdition. Insiders report that Paramount and Columbia are also close to taking the same step.
Pete Smith, president of international video, Universal Pictures, said: " We are not ready to go public on our trading policy and an update on our windows policy is unlikely to be decided for a few months. Rental is a very important part of our jigsaw. We don't want to see that jeopardised."
But he intimated what may be possible. "Last year we cut the window from four months in some territories to four weeks. The result has been an increase in retail business and no change to rentals." He also added: "We now have a very stable day and date model in Japan."